Report on attrition rates of bpo and ites

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“If employees are to be products,
their shelf-lives are getting shorter”

In the best of worlds, employees would love their jobs, like their coworkers,
work hard for their employers, get paid well for their work, have ample
chances for advancement, and flexible schedules so they could attend to
personal or family needs when necessary. And never leave.

But then there's the real world. And in the real world, employees, do leave,
either because they want more money, hate the working conditions, hate
their coworkers, want a change, or because their spouse gets a dream job in
another state. So, what does all that turnover cost? And what employees are
likely to have the highest turnover? Who is likely to stay the longest?

Defining Attrition: "A reduction in the number of employees through
retirement, resignation or death"

Defining Attrition rate: "the rate of shrinkage in size or number"

Attrition is beginning to significantly affect offshore ROI. Just as businesses
faced a scarcity of talented IT resources during the dotcom era, organizations
in offshore countries such as India are experiencing similar pains. Skilled
employees are hopping from job to job and taking with them the customer
knowledge and technical expertise that any company needs. Their salaries
are increasing, along with their perks, benefits, and bonuses.
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Defining the attrition problem

Global outsourcing and the astounding amount of foreign direct investment
pouring into China, Russia, and India have created tremendous opportunities
and competition for talented IT professionals in those countries. The
downside of this increased competition is a rising rate of attrition,
particularly in India. Fiscal third-quarter 2005 (ended December 2004)
results filed by Infosys, Wipro, Satyam, and TCS listed attrition rates
between 7.6% and 17.7%. Vendors that we have interviewed place the
numbers much higher, at 25%–60%, while an April 2005 BusinessWeek
article estimated an attrition rate of 60%, with some India service providers
experiencing up to 80% turnover.

To put these attrition numbers into perspective, if a company has 100
programmers and an attrition rate of 25%, then 25 of its IT staff will leave
each year. Think about the time and money it took to find, interview, hire,
train, and coach those 25 people. Now think about losing them and starting
the hiring and training processes anew.

How do the hiring and training processes break down in terms of total costs
in India? The typical time for advertising, interviewing, screening,
negotiating, and hiring a new employee is about two weeks. Companies
usually allot one week for programmers to become familiar with the new
business, two more weeks for technical training, and one last week for
customer training. Now imagine a 25% attrition rate and replacing 25 of
these programmers each year. Based on a yearly salary of $15,000 for the
human resource person and $25,000 for the programmer, it would cost an
additional $63,000 annually in acquisition and employee training costs. After

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considering these figures, it quickly becomes apparent why companies are
investing in strategies to prevent attrition.
Reasons for attrition

It is not easy to find out as to who contributes and who has the control on the
attrition of employees. Various studies/survey conducted indicates that every
one is contributing to the prevailing attrition. Attrition does not happen for
one or two reasons. The way the industry is projected and speed at which the
companies are expanding has a major part in attrition.

For a moment if we look back, did we plan for the growth of this industry and
answer will be no. The readiness in all aspects will ease the problems to some
extent. In our country we start the industry and then develop the
infrastructure. All the major IT companies have faced these realities. If you
look within, the specific reasons for attrition are varied in nature and it is
interesting to know why the people change jobs so quickly. Even today, the
main reason for changing jobs is for higher salary and better benefits. But in
call centers the reasons are many and it is also true that for funny reasons
people change jobs. At the same time the attrition cannot be attributed to
employees alone.

• Organizational matters:

The employees always assess the management values, work culture, work
practices and credibility of the organization. The Indian companies do have
difficulties in getting the businesses and retain it for a long time. There are
always ups and downs in the business. When there is no focus and in the
absence of business plans, non-availability of the campaigns makes people to
quickly move out of the organization.

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• Working environment:

Working environment is the most important cause of attrition. Employees
expect very professional approach and international working environment.
They expect very friendly and learning environment. It means bossism; rigid
rules and stick approach will not suit the call center. Employees look for
freedom, good treatment from the superiors, good encouragement, friendly
approach from one and all, and good motivation.

• Job matters:

No doubt the jobs today bring lots of pressure and stress is high. The
employees leave the job if there is too much pressure on performance or any
work related pressure. It is quite common that employees are moved from one
process to another. They take time to get adjusted with the new campaigns
and few employees find it difficult to get adjusted and they leave
immediately. Monotony sets in very quickly and this is one of the main
reasons for attrition. Youngsters look jobs as being temporary and they
quickly change the job once they get in to their own field. The other option is
to move to such other process work where there is no pressure of sales and
meeting service level agreements (SLA). The employees move out if there are
strained relations with the superiors or with the subordinates or any
slightest discontent.

• Salary and other benefits:

Moving from one job to another for higher salary, better positions and better

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benefits are the most important reasons for attrition. The salary and offered
from MNC companies in Bangalore, Delhi and Mumbai have gone up very
high (Rs 15000 to Rs 18000 per month) and it is highly impossible for Indian
companies to meet the expectation of the employees. The employees expect
salary revision once in 4-6 months and if not they move to other
organizations.

• Personal reasons:

The personal reasons are many and only few are visible to us. The foremost
personal reasons are getting married or falling in love or change of place. The
next important personal reason is going for higher education. Most of the BE,
MCA and others appear for GATE examination or other examinations and
once they get cleared they quickly move out.

Health is another aspect, which contributes for attrition. Employees do get
affected with health problems like sleep disturbances, indigestion, headache,
throat infection and gynecological dysfunction for lady employees. Employees
who have allergic problems and unable to cope with the AC hall etc will tend
to get various other health problems and loose interest to work.

• Poaching:

The demand for trained and competent manpower is very high. Poaching has
become very common. The big companies target employees of small
companies. The placement agencies have good days for doing more business.

The employees with 4-6 months experience have very good confidence and
dare to walk out and get a better job in a week's time. Most of the
organizations have employee referral schemes and this makes people to
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spread message and refer the know candidates from the previous companies
and earn too.

• Employee’s advocate:

One of the main reasons why employees leave companies is because of
problems with their managers. An HR professional can be termed an
employee’s advocate and a bridge between top management and employees at
all levels. There is a huge gap between HR professionals and employees in
terms of understanding challenges and delivering requirements. HR has not
really understood the problems associated with employees’ careers and jobs.
The company’s overall plans and strategies also depend on HR professionals
as they voice employees’ problems and requirements. The HR department
should have genuine interest in the employees’ welfare…it is responsible for
making sure that their expectations are met. By doing this it is easier to meet
the company’s business targets.

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Handling attrition?

Earlier the retention was the sole responsibility of HR Department and at the
most the department heads will be accountable for the retention of talent. In
companies the wheels have changed and multi dimensional approach needs
to be adopted. More of concerted efforts only would help to retain the talent.
Everyone has to contribute to hold the employees little longer period. All the
leading companies are trying several methods to retain the talent and few of
those innovative HR practices are: (based on a survey)

• Providing stimulating work environment:

In terms of stated work pressure, only 17% have claimed ‘light pressure’. This
may point to a reasonably high-pressure environment in conventional terms,
not realized as most respondents have no other industry experience. The
atmosphere at the workplace however, was generally positive. Almost half
worked more than 45 hours per week.

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• Free transport and free food:

Majority of the breaks were for meals and there were no significant problems
faced in taking the breaks.

Almost 2/3rd employees travel more than 10 kms to work everyday. This is a
huge strain on quality time available with the family and ostensibly results
in stress in numerous ways compared with other industries. The root cause is
that most BPOs are located outside the city as government lands have been
allocated to the MNCs at better rates there.

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Although taxi / bus services are provided by most employers, as many as 30%
workers travel crammed (more than 5 persons to a taxi). What’s more, 79%
waste more than 30 minutes of their productive lives everyday waiting for
commute. Interestingly, lower salary workers get no such benefits.
• Good rewards and recognition programmes:

As many as 56% admitted to being asked to work overtime. 44% refused the
question implying that conditions are created such that all probably are
coerced into working overtime. The oppressive part was further that as high
as 41% claimed to not having been paid for overtime.

• Recreation clubs, Canteens, Entertain programmes , fun
activities with in the work area:

Many companies have canteens though the quality of food is not great.

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• Good pay and benefits:

A huge 58% of starters are dissatisfied with their promised packages vis-à-vis
delivered salary.

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• Other practices include:

- Promotions and salary increase on a regular basis.
- Better learning opportunities, Encourage enroll for distance learning
programmes.
- Regular holiday packages, gifts, outings etc.

All the above activities are being undertaken to a greater extent or little more
in all large Companies. Surprisingly the attrition rate is not coming down in
any of the companies, but it is going up and it may increase in the coming
days. This is a time to introspect as to what is lacking in the approach. One
thing is missing is attention to individual needs. Employees have varied
expectations and it is becoming difficult to understand them and by the time
you make an attempt to understand the expectation changes and it is still
becoming difficult to meet the customized demands or expectations. To quote
an example, if a friend leaves, another close friend will also leave and he will
lure another 3-5 persons. Moving for higher education and marriage are the
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major reasons for attrition. To tackle these will be impossible with any type
of strategies and approaches. The HR personnel have become silent
spectators and start hunting for new personnel to replace.

The broader approach is to bring sanctity in the recruitment process like
demand the relieving letter from the previous company, have non-hire
agreements with the companies in the particular area. It is not easy to bring
the entire company under a forum. Nasscom has attempted to bring out
certain guidelines on the matter and the impact is not felt yet. The MNC
culture, high salary level and benefits offered by them are the only two major
aspect of attrition and no one can halt them doing so.

• How Insights Can Help Build Strong Manager/Employee
Relationships:

The Insights Discovery System is based on perspectives and attitudes
relevant to understanding organizational and cultural requirements and
needs of people in relation to motivation and leadership. The understanding
of individual differences that Insights provides is fundamental to improving
communication, co-operation and building effective and high morale teams.
This understanding is what bridges the gap between manager and employee.
The Insights Discovery System generates reports that reveal personal
preferences or triggers of each individual - including issues that cause stress.
In essence, Insights can bring about a closer relationship between employee
and manager to enable both parties to better adapt, connect and understand
one another.
An employee may be highly competent but his or her style may be different
from that of the direct manager. The "Value to a Team" section of an Insights
report provides crucial information to a manager who tends to evaluate all
employees against one set of standards. Insights can help managers recognize
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the value and uniqueness of each person's contributions then reward them
accordingly.

Insights also serve as a communication vehicle for discussions about an
employee's current and future interests. Insights help managers and
employees better identify what values (needs) are most important to each
individual and how these values impact the person's attitude towards work.
Values can range from an employee feeling stable and secure to someone
enjoying challenge.

The Insights Discovery System is a powerful workforce enhancement tool. It
can:
- Enhance the effectiveness, commitment and retention of an incumbent
workforce though increased understanding of human behavior
- Motivate and retain employees whose basic monetary and material needs
may have been satisfied, but who are seeking their internal drives
- Improve HR planning and development
- Identify motivational and managerial issues related to interpersonal style
- Reduce the impact of turbulence and organizational transition on employee
commitment and productivity.

How to save high attrition rates?

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• How much would you invest to keep your employees focused
and happy?

This is the question on the minds of CEOs and managers worldwide as the
technology boom lifts and the employment market opens.

From the employer's perspective, employees are an investment. You
interview to make sure an individual has good work ethic, motivation, and
drive. Most of the time, employees are considered a financial investment. Yet
there's much more to it than that. There is a significant emotional
investment that is crucial to accelerating business strategies and reaching
organizational goals.

You probably know someone who owns an outdated, overused vehicle but
won't entertain the thought of trading it in even though they can afford to
upgrade. Why, you might ask, do they keep it? Well, the owner has probably
invested substantial time, money and care into keeping it in top condition,
not to mention the dependability that has taken them to countless doctors
appointments, baseball practices and events. It seems senseless to throw it
away. The cost of replacing the vehicle would be enormous compared to the
cost of upkeep on the old one. Even with inanimate objects, we become
accustomed to personality and quirks and develop a common trust.

When this same logic is applied to employees, we find the cost of replacing
employees comparable to that of investing in a new automobile. Recruitment,
hiring, benefits and administrative costs put an organization upside down on
the investment.

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Thankfully, companies have come to realize that keeping employees is more
cost-effective than replacing them. Retaining valuable employees has other
benefits - retaining the vault of knowledge that's been accumulated, skills
learned and trust and relationships they have built with customers and co-
workers.

• People Are Not Easily Replaced

Even though today's pool of unemployed workers is deep, organizations
choose to spend more time and resources on retaining existing employees
than starting from scratch. Yes, there are financial reasons behind this focus
on retention. However, there are many other contributing factors such as the
effect attrition has on customer service, corporate culture and employee
morale and loyalty. All these factors can and will be effected by turnover.
Basically, when good people leave an organization they take their training
and knowledge and often times, relationships with them.

• Drivers of Turnover

Turnover is often driven by corporate restructuring and tight competition for
key talent. For many firms, surprise employee departures can have a
significant effect on the execution of business plans and may eventually cause
a parallel decline in productivity. This phenomenon is especially true in light
of current economic uncertainty and following corporate downsizing when the
impact of losing critical employees increases exponentially.

When managers or supervisors are asked why good people leave, most
respond, "It’s about money." Or, they dismiss the departure matter-of-factly
by stating the employee "received a better offer." Contrary to popular belief,

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research indicates that money is not even on the list of top five reasons
employees give when asked why they are leaving an organization.

When viewed from the employees' perspective, a healthy organization is one
in which people are generally satisfied with the quality of their work life. On
most days they feel good about going to work. They feel empowered to help
shape decisions that affect them, they have the resources and skills to satisfy
customer needs and they are generally confident in the abilities of the
leadership team.

From the organization's perspective, the organization is healthy if it is viable
as measured by profitability, competitive market position and customer
satisfaction. A healthy organization also responds well to the need for change;
it is adaptive and thereby ensures its future - meaning that following a major
upheaval or transition, the healthy organization rebounds and employees
remain committed.

Bottom line, it is the role of the manager, that most influences an employee's
decision to stay or depart from an organization. People will leave if they don't
like their manager - even when they are well paid, receive recognition and
have a chance to learn and grow. In fact, disliking or not respecting the boss
is the primary reason for talent loss. Research shows the reasons for
employee departures are (in descending order):

1. Employee/manager relationship
2. Inability to use core skills
3. Not able to impact the organization's goals, mission
4. Frequent reorganizations; lack of control over career
5. Inability to grow and develop
6. Employee/organization values misalignment
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7. Lack of resources to do the job
8. Unclear expectations
9. Lack of flexibility; no 'whole life balance'
10. Salary/benefits

It is very important to know that the above factors are often NOT the ones
mentioned in most attrition studies published by individual organizations.
Additionally, this information does not match the data frequently obtained
during an employee's exit interview when asked about the reasons for
departing. The rationale behind this discrepancy is that exit interviews are
frequently conducted by the departing employee's manager or HR manager,
hindering honest responses. Typically, employees are hesitant to tell these
company representatives the truth for fear of burning bridges or getting a
bad reference.

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How to curb attrition?

• Money is not everything

Although the importance of higher packages is slowly diminishing, among
fresher or laterals with less than three years of work experience, money is
still considered to be the highest priority. Employees want not only work
recognition, but also extra perks." A number of professionals are looking at
more challenging jobs. "In several cases, faced with a choice between more
money and a challenging job, employees have opted for the latter as it allows
them to learn new technology and increase domain expertise." People analyze
the training programmes of prospective companies with those of their current
organization, which means that how an organization grooms an employee is
weighed to a greater extent. This is because they know that developing next-
level skills will keep them ahead in the job market, and finally result in
better compensation. They also look for a job with higher levels of
responsibility, better learning opportunities.

• Vision and objectives

The next level of communication, a crucial part of retention, starts
with acquainting employees with the company’s vision and objectives.
Organizations successful in retaining employees clearly pass on their goals
and achievements. Conducting regular meetings and updating employees,
especially new entrants, about the company’s status and achievements is a
must.” They should concentrate on leadership and brand building as people
prefer to be associated with a brand. Respect for the job should be created by
BPOs. The youth should feel proud to be a part of the billion-dollar industry.

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Mentoring and handholding new recruits from day one to four months are
important tasks; during this period, they should be familiarized with the
culture of the company. It is at this time that new entrants experiment with
different options. Hence they should be exposed to the best values the
company has.” If they are informed about regular happenings in the
company, employees will be confident about the future and not try to look for
better options.

• Treat employees like Customers

Even while companies strive to understand which organizational, job, and
reward factors will contribute to holding back employees, industry experts
have found several loopholes at the top management and HR management
level. Companies should have a similar approach to employees and
customers. If a company strives to retain an employee in the same way it
tries to retain a customer, him leaving the organization could be out of
question.

Since software professionals have different priorities at different points of
time, organizations need to structure their offer-mix while recruiting new
hires, as well as promoting potential ones. Communication is the foundation
for the entire process of managing attrition. This communication begins right
from recruitment. In cases of peer pressure, an employee aims to join a well-
known company. This could be achieved by brand building, which attracts the
right talent and helps in retention as well.

Understanding an employee’s needs at various levels is a recommended HR
practice.

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• Firing

Sometimes, firing can look like attrition. Looking at firing and attrition
together in a different light, firing can be an excellent tool to contain
attrition. Attrition can simply be defined as employee leaving his current job
due to reasons like, job pressure, health problems, personal reasons,
inefficient boss, lack of job security etc. All the above reasons are interlinked
and can be the reasons for good workers to quit. If the team has under-
performers who despite given sufficient support and training is unable to
perform, but they continue to be part of the team damage the morale of the
team. A performer will not want to be part of the team, which has non-
performers because he will have to compensate for the non-performer,
thereby increasing his job output/pressure. A continuous job pressure results
in health problems. Having frequent health problems not only reduces his
performance, but also affects him financially. At this juncture, the performer
realizes that he is working with an inefficient manager who is not capable of
“cleaning up” the team by firing non-performers. With the above, the
performer employee feels insecure and resigns. Firing non-performers can be
an efficient tool to contain attrition.

• Consider feedback

It is important to take feedback from employees through different means and
work with the HR department to iron out differences. As industry experts
point out, feedback can be got in two ways—during the employee’s tenure,
and through exit interviews. Inputs can be secured from existing employees
through various employee relationship management tools. The Wipro Listens
and Responds initiative at Wipro aims to capture the concerns and
grievances of its employees. “The feedback we get through this tool will be
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analyzed, and action will be taken on it. Our employees are very excited that
their feedback is being taken seriously,” says Sahoo. Exit interviews help
management learn the reasons why employees leave the company; based on
their revelations, the organization can address the problems of existing
employees, thereby curb attrition.

• Spend Time Developing and Benchmarking Incentives

Whenever the demand for a professional in a particular field heats up, the
perks associated with the job start to pile up. Standard perks for an India-
based "fresher" (a new entrant in the IT services industry with little work
experience) typically include free transportation, educational assistance,
healthcare benefits, performance-based bonuses, onsite cafeteria, stock
options, and interest-free loans to absorb the cost of relocation or maybe to
finance the purchase of a two-wheeler. According to Wipro's web site, its
employees even have access to an agency that will handle such "domestic
chores" as paying bills, thereby giving IT workers more free time.

An important part of designing incentives is aligning them with market
benchmarks. As far as salaries, HR firm Hewitt Associates reports that India
showed the largest overall salary increase in the Asia-Pacific region in 2004.
Salaries in India grew by 11.6% overall, while China trailed with a 6.4%–
8.4% hike, the Philippines showed a 7.4%–7.7% increase, and Korea saw
wages jump by 6.4%–6.8%. Salary increases for middle managers in India
were even more dramatic: Nasscom, India's software association found that
salaries for middle managers rose by as much as 30% in the last two years.
These salaries are often paired with expansive benefit packages that include
standard entry-level benefits as well as special services such as help finding
and buying a home or enrolling children in school.

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Captive centers and IT service providers have to offer innovative
compensation and benefits—or risk losing valued employees to competitors.
Nonstop evaluation and benchmarking are "need to do" activities for IT
managers.

• Subsidize Education and Certification

In the United States, many companies reimburse employees for advanced
degrees or certifications that relate to their area of expertise. Until recently,
the opposite was true in India, but that trend has begun to change as
businesses have discovered that a significant portion of their attrition
problems stem from employees leaving to pursue a master's degree. Several
offshore service providers have teamed with universities to offer their
workers management-level master's courses at a subsidized rate, and
watched attrition rates drop as a result.

For example, Cognizant Technology Solutions, an IT service firm with 17,000
employees, partially reimburses Indian staff that pursues master's degrees at
BITS, a higher-education institution located in Pilani, India. Business
process outsourcing (BPO) player 24/7 Customer, in association with the
Indian Institute of Management Bangalore, launched a management-
education seminar series called "Beyond Knowledge," through which 24/7
aims to educate employees about the BPO industry and discuss related
careers. Multiple providers have followed the lead of Cognizant and 24/7.

In several offshore countries, advanced degrees are considered crucial to
social standing. It's important for U.S. firms with little international
experience to recognize this desire among employees and design programs
accordingly.

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• Change Locations

The high prices and resource crunch in top-tier Indian cities such as
Bangalore and Mumbai have led many companies to execute alternative
location strategies. Many vendors are sending work to tier-two cities
(Hyderabad or Chennai) or even tier-three cities (Noida or Chandigarh),
where labor and real estate costs as well as attrition may be cut in half. Such
benefits come at a price: The infrastructure quality lags that of more
advanced cities, and the search to find qualified people may take longer.

Another option to combat the rising attrition rates in India is to locate in
other countries. Sykes Enterprises, for example, disclosed that it is relocating
the customer contact management work at its Bangalore, India, facility
because the center delivered an inadequate return and a limited competitive
advantage. The Tampa-based company thinks the work is better suited for
the other Asia-Pacific offshore centers in its portfolio, such as China. Sykes
expected to incur total charges of approximately $0.8–$1.5 million for its plan
to relocate work.

• Rotate Employees

Employees who don't feel challenged by their work often leave. In response,
companies such as TCS have programs that rotate employees into different
disciplines about every two years and expose them to new locations, projects,
and technologies. L&T InfoTech, a software solutions provider with 4,000
employees and six development centers in India, has implemented a similar
program.

Offshore employees are asking for a clear career path with increased
responsibility and frequent recognition of achievement. Established U.S. and
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European multinational companies have long had learning programs that set
expectations for performance goals such as learning a particular tool or
proprietary software. Companies practicing off shoring need to provide new
challenges and opportunities for skills development through training or job
rotation. It may become the only reason your best employees stay with you.

• Combat Poaching by Encouraging Referrals

Rather than going through a prolonged posting process and screening a
deluge of résumés, some companies poach employees directly from their
competitors and offer to double salaries or buy out contracts on the spot to
scale up quickly. Poaching is generally a bad idea, as it drives up salaries and
discourages employee loyalty.

An employee referral program can serve as an alternative and effective
recruiting strategy. Satisfied employees can be a company's best sales tool
and add a personal touch that a print or radio campaign lacks. A Voice &
Data survey of the top 15 Indian outsourcing companies with 1,000-plus
employees found that referrals constituted 23% of new hires. For some
companies, the number was even higher, at 40%. The study also observed
that recruits hired through employee referral programs are "stickier"; that is,
they stay with companies longer than non-referrals.

• Just Ask: Are Your Employees Satisfied?

Retention is inextricably linked to employee satisfaction, so it pays to
periodically survey employees —hopefully before their exit interviews—about
job satisfaction issues, and act on the data gathered. The aim is to determine
why some employees depart and some remain with the company, and to
define the traits of productive, successful employees. Many companies
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examine the reasons employees leave, which don't reveal as much as the
reasons they stay.

An important aspect of implementing a retention program understands that
it should not be one-size-fits-all. If incentives are meant to keep employees
happy, then they truly have to be designed with the employee in mind. Too
often, employers and employees disagree on what constitutes a good
incentive. For example, a company might reward a father with three young
children a monetary bonus as thanks for working overtime for five months
straight. To the father, however, days off might have been more attractive,
since they would have allowed him to spend time with his family.

Knowing your employees and personalizing rewards makes a difference. The
global workforce has different, individualized needs, and organizations
should tailor incentives for their employees if they want to retain them. If
your company doesn't bother, don't be surprised if workers head for the door
as soon as year-end bonuses are handed out or stock options vest.

• Spend More Time Recruiting

With huge projects ramping up within exceedingly short windows, it can be
hard to convince management to allot more time to the recruiting process.
However, it's difficult to retain good employees if the company doesn't have a
process to hire the right people in the first place. Simple measures, such as
incorporating skills tests that relate directly to the job in question, can help
companies to determine whether the applicant is indeed an expert
programmer or merely an intermediate programmer. Having employees
interview candidates also may increase the chances of success, as these
employees can better identify potential personality clashes that HR personnel
may not spot.
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Costs of Turnover

The impact of employee turnover on company performance is often
understated by organizations. This describes how the cost of turnover is can
be calculated using some basic organizational parameters. The purpose of
this document is to provide talent cost of turnover calculator with insight into
how costs are calculated and the reasons why certain costs were include or
excluded form the calculator. The calculator should only be used as a guide in
understanding the impact of turnover on a company. If the desire is to
understand the true cost of turnover then it is suggested that a greater
degree of analytical work is undertaken.

The key areas used in the calculation of turnover are:

• Administration and sourcing costs

These include the administration of the termination and recruitment
functions together with the costs associated with interviewing, testing and
attracting applicants.

• New Hire costs

Once a person has been employed an organization generally spends
significant resources in the induction and administration of bringing them
into the organization.

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• Lost productivity

The hidden costs associated with lost productivity of employees prior to
leaving the organization and new less skilled employees are one the largest
components of the total cost associated with turnover.

• Dysfunctional and avoidable turnover

Determining the level of dysfunctional and avoidable attrition provides a
perspective on the scope of control that a company has to manage their
turnover costs. Determining the cost of turnover is the first step in the
process of developing a management plan. To deal with an attrition issue
effectively the reasons for turnover and an understanding of the
demographics of turnover need to be understood.

Undoubtedly, the financial costs of turnover have attracted the attention of
academics and practitioners alike. Besides the more familiar costs associated
with the administration of terminated employees the economic costs such as
productivity losses need to be included in any calculation. In particular,
departure of employees - especially experienced or talented ones - may
threaten overall firm productivity or client retention. Furthermore, personnel
losses may endanger the firm’s future opportunities in the marketplace or the
morale of their remaining work force. Human resource accounting experts
Cascio, Hom and Griffeth define exit expenses as having two main
components - direct and indirect costs. A company incurs both direct and
indirect costs that result in losses in production dollars and overall
production volume, as well as increased administrative costs. Direct Costs
are actual dollars spent each time an employer has to attract, select, and
induct a replacement for an employee who leaves the organization. Indirect
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costs are those expenditures attributable to turnovers affects on production -
that is costs for incomplete or disrupted work, loss of quality, etc.

The cost of turnover can be calculated by measuring the time taken to
administer each activity plus the direct costs such as advertising costs. The
turnover costs calculated using the calculator represent dollars spent. The
potential loss of revenue if these dollars were invested elsewhere or through
lost productivity is not calculated. Therefore, the figures are an indication of
the minimum costs that the organization is subjected to when an individual
leaves the company.

• Administration & Sourcing costs

The most visible cost of turnover is incurred by organizations in the area of
recruitment administration and sourcing. The time associated with
processing terminated employees and recruits places a burden on
organizations where staff turnover is excessively high. The assumption is
that this is largely an administrative task conducted by people at 80% of the
average company salary. In addition the direct costs to a company for
recruitment agency and advertising costs are highly transparent.

1. Process Administration:
Resignation Administration -
The time taken to administer a resignation will include activities such as:
conducting exit interviews & processing of administrative tasks. The time
taken to perform these activities is ideally measured as a result of
analyzing the processes involved.

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Recruitment Administration -
A large amount of time is often spent in administering the recruitment
process. Writing the job ad, posting it onto job boards, organizing agencies
and reference checking all require the use of organizational resources,
whether internal staff or outsourced. The hours spent involved in these
activities does need to be factored into the cost of turnover.

2. Sourcing Costs:
Agency expenses -
The cost of sourcing a successful applicant from an agency may be one of
the largest single direct costs associated with recruitment.

Advertising costs -
The cost associated with posting job ads to job boards or traditional media
such as newspapers can be significant. The average cost per vacancies is
used within the calculation.

3. Interview Costs:
Interview -
A core component of recruitment administration is the cost associated
with interviewing applicants. Interviews make use internal resources. The
more interviews held and the greater the number of candidates
interviewed the larger the costs associated with these activities.

Testing -
Companies are making greater use of psychometric and aptitude testing
in their recruitment processes. These tests can be costly to administer and
as such need to be factored into the overall attrition costs.

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Travel -
Companies may pay the costs associated with bringing an applicant to the
interview location. Although this may not be done for every candidate an
average is used in the I4 calculator.

• Cost of New Hire

The two costs measured in this area are the administrative tasks associated
with inducting a new hire into the organization and the associated induction
training. When measuring the cost of attrition sometimes the total cost of
training that an individual has received whilst in the employment of an
organization is included. However, as all learning undertaken by employees
will be used back on the job an add value to the business it is inappropriate to
count it as a cost of attrition. Also, where particular jobs have high training,
often there is a corresponding lower rate of pay which acknowledges the
investment that the organization is making in the individual, eg. Youth
wages. One aspect of training directly associated with turnover, however, is
the induction of new staff to the organization. High staff turnover will
necessitate greater levels of resources being made available to induct new
employees. It is the opportunity costs of these resources that must also be
calculated.

1. Induction Administration

The process of induction into an organization can involve a substantial
amount of time. The activities included here would include the processing of
new hires into organization systems (HR) and introductions to fellow
employees.

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Induction Fixed Costs -
The fixed costs associated with inductions include the cost of materials
such as induction kits and staff manuals.

Induction Training -
Any initial training received by an employee on joining the company.
This includes the costs of the materials, presenters and the
opportunity costs associated with the new employee taking time off
work to participate.

Relocation Expenses -
Similar to travel these cost are incurred by companies in an effort to
source the best talent for alternate locations. An average cost needs to
be captured as part of the calculation process.

• Productivity Losses

The most detrimental aspect of staff turnover is lost productivity. Evidence
has found that leavers often miss work or are tardy before they depart. Deery
and Iverson argue that according to progression-of-withdrawal models the
productivity of leavers may deteriorate before they depart.

Turnover is commonly viewed as belonging to a family of withdrawal
behaviors that physically distance employees from unpleasant work settings.
Serving a common psychology function, withdrawal actions reduce the time
spent in an adverse environment and thus reduce job dissatisfaction.

Studies have shown that employees leaving a company will have a greater
level of absenteeism prior to leaving. Excessive sick leave is not only costly,
but is also an early warning signal that an individual may be considering
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resigning from the organization. Not only does staff take more sick leave but
Hom and Griffeth state that their overall productivity decreases as well.
Furthermore, resignations may disrupt other employees’ work if their work
depends on the leavers or they must assume the leavers’ duties.

The second effect of loss of productivity occurs when new hires join the
organization. They will not have the networks, understanding of
organizational processes or product/service knowledge to be effective. Studies
have shown that a new hire will generally take between 3- 8 months to
become effective in their new role. The longer period is associated with more
senior roles.

• Excluded costs

Not all the costs associated with turnover have been included in the i4
attrition calculator. Costs that cannot be accurately measured or assumed
have been excluded. These costs, although hidden, may be the most critical in
terms of organizational impact. Examples of hidden costs are included below
to highlight the organizational impact of attrition.

• Employee Demoralization

Turnover may erode the morale and stability of those who remain employed.
Their morale suffers because they lose friends and may interpret motives for
quitting as social criticisms about the job. A belief that a leaver has a “better”
job elsewhere may change employees’ perceptions of their jobs. As a result
stayers may denigrate their present position in the light of superior
alternatives and begin contemplating other employment. This phenomenon
may lead to a cycle of attrition whereby employees leaving a company prompt
other to do the same.
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• Impaired Quality of Service

Turnover also hinders the delivery of service and retention of customers.
Attrition among service personnel impairs customer service because
understaffed branches delay or withhold service. Unlike experienced leavers,
new employees may also provide less competent or less personalized service
because they do not know the clients and can’t meet customer expectations
through lack of knowledge and experience.

If satisfied employees make customers feel well treated, disgruntled
employees may provide careless service before they leave. Turnover also
interrupts the transmission of service values and norms, which are the
essential underpinnings of high quality service, to successive generations of
employees. Customers' perceptions, attitudes and intentions seem to be
affected by what employees’ experience, both in their specific role of service
employees and their more general role of organizational employees. It has
been found that there is a high correlation between employee turnover and
customer turnover. Therefore, the cost of decreased customer satisfaction and
loyalty should be taken into account when considering staff turnover.

• Turnover reason & cost impact

Just as attrition can lower productivity, incur financial costs, and undermine
stayers' morale, turnover can have the opposite ramifications under certain
circumstances or for certain firms. That is that the exit of marginal
performers may improve overall firm productivity, while new replacements
for leavers can infuse companies with new ideas and technology. Though
turnover is obviously costly, personnel shrinkage - especially among
administrative staff - can nonetheless reduce overhead costs. Further

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resignations may create more job and empowerment opportunities for
employees who remain in firms.

• Functional and Dysfunctional Turnover

Departing from conventional beliefs, some academics point out that turnover
can prevent stagnation and complacency, facilitate change and innovation,
and displace poor performers. Turnover is not inherently negative. Although
it creates personnel costs, the organizational consequences of turnover are
dependent on who leaves and who stays. The departure of good performers is
construed as dysfunctional turnover - representing a loss to the organization -
for their replacements are likely to be of lower caliber. The departure of poor
performers is viewed as functional turnover - because they are apt to be
replaced by better performers. Research into whether high performers or low
performers leave tends to have found mixed results. A meta-analysis
conducted by McEvoy and Cascio found that generally it is the poor
performers that will leave their place of work. There are two possible
explanations for this: firstly, terminated staff has on average a lower tenure
than current staff and so have not had the time or opportunity to develop the
skills necessary to perform well; or the current performance management
systems which exist are encouraging high performers to stay and poor
performers to quit.

• Avoidable and Unavoidable

Further differentiation should occur between organizationally avoidable
turnover and organizationally unavoidable turnover. For example,
organizations cannot control (that is, it is unavoidable) turnover caused by an
employees death, or by an employee’s quitting to follow a relocating spouse. It
is important to identify carefully those exits that are avoidable and those that
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are unavoidable. After all, leavers whose departures are unavoidable
resemble stayers more than they resemble the leavers whose departure is
avoidable; they do not resign because they are unhappy with their jobs or the
organization.

Despite the appeal, determining whether exits are avoidable or unavoidable
may prove difficult because employees may falsify reports of their reasons for
leaving, they may not wish to burn their bridges behind them.

The cost of attrition is only calculated on the level of avoidable turnover.
There is no benefit in including the cost of unavoidable turnover since a
company has no control over these events and can therefore not put in place
action plans to minimize the negative consequences of staff turnover.

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Article -
‘Attrition at Call Canters’

The evolving BPO industry has got the perplexing issue of
managing human resources, says BHIMA RAO

Attrition of employees in the call centre industry is mind-boggling and it is
creating havoc for the industry and especially for the HR department. The
attrition rate varies from minimum 30 per cent to a maximum 90 per cent per
annum. The software also saw this rate till the incident of September 11,
2001. I wonder why the attrition rate was not so high in any other new
industry like telecom, retail stores, banking etc. Who has to introspect, how
much responsibility should be borne and are we collectively contributing
directly or indirectly for the attrition.

Attrition is not a new problem and it has existed earlier and will continue to
exist in any industry. But there is a limit for every thing. The call center
industry is new and every one is in a great hurry to make some thing or do
some thing, become someone in the sun rise industry. The government,
promoters, management team, employees, consultants, media and so many
others play a major role in developing any new industry and extend helping
hand for stabilization and finally growth of the industry.

Our country is fortunate to be identified as one of the best places for BPO and
the beginning is really good. Now the growth of BPO industry is mainly
depending on the cost effectiveness and quality of the manpower. All other
factors are being taken care by the government through liberalized laws,
providing infrastructure like telecom and we are best in the IT. The cost
effectiveness will depend mainly on controlling the running cost and quality

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is dependent on the manpower employed. Attrition of employees increases
the cost of recruitment and training. It has impact on maintaining the quality
and competent manpower to meet the standards set by international
customers.

• Four reasons why youngsters quit BPOs

What drives young people to quit call centres and data processing units as
fast as they join them? As industry attrition rates (how soon people quit jobs)
climb as high as 80 percent in some companies, human resource executives in
various BPO firms tried to pinpoint the reasons that make young people
between the ages of 22 and 26 shuffle jobs in months. They were
participating in a seminar on key HR issues for the BPO industry in
Bangalore today. This is what they came up with.

1. BPO not seen a long term career

"This industry is still not being accepted for a long term career," said Mphasis
BPO Services' chief human resources officer Manab Bose.

2. High aspirations that the industry cannot meet

BPO employees have high aspirations. They want to see 'wealth' in this
lifetime and have low respect for authority. This is because most BPO
employees have immense family support.

3. Good talent is prone to poaching

ICICI OneSource President and CEO Raju Bhatnagar said the pulls of the
market (poaching by competitors) cannot be countered easily. BPO firms try
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to pick the best talent, he explained, and good talent is prone to be poached or
to shifting jobs. He suggested that firms should instead look at the average
person, train and retain him/ her for the longer haul.

4. Employees face pressure at home and at work

Philips Software CEO Bob Hoekstra felt BPO employees are in a piquant
situation, having to handle pressure both from their customers and at home.
"There is an enormous conflict in age group [ in terms of the fact that]
youngsters are serving mature customers, and they are prone to make
mistakes," he said.

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Case Study -
'I'll never work at a call centre again!'
Subhash Mukherjee | November 18, 2004

The BPO/ITES sector is only expected to grow larger, and more profitable,
over the next few years. Most young people are eager to jump on the money-
making BPO bandwagon.

But is working for a BPO all that it's made out to be?

No, says Subhash Mukherjee (name changed on request), who recently
quit his job at a call centre.

This, in his own words, is his story:

I am 20 years old. I was recently hired by a call centre in Kolkata to work for
an overseas-based company. I was earning Rs 7,500 per month.

My workday began with calls I had to answer for five hours continuously,
without a break. As soon as I was through with one call, the next one would
be waiting. There was no time for me to even say a few words to the person
sitting next to me. After five hours of constantly answering calls, I would get
a 20-minute break. Then, I would take calls again for another three hours.
Without a break. I would take around 350 calls a day.

One day, I reached breaking point. After taking 156 calls at a stretch, my
throat started to hurt terribly. I paused to take a breath and, in the process, I
missed a call. The calls that are directed to us were constantly monitored by a

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machine. Immediately, it alerted my supervisor to the fact that I had missed
a call. My supervisor came and asked me why I was in the 'wrap mode'.

What this means is that my dialer shows a red bar when the person on the
other end of the line hangs up without getting a response. The red bar is an
indication that I did not take the call -- that the call was not 'live'. At that
moment, I just wanted to pick up my bag and leave. Permanently. Instead, I
stayed calm for the duration of my hours at work.

I fielded all my calls till 1 am. But I had made up my mind -- I would quit
this job with its inhuman pressures and its lack of empathy for employees.
Workplaces like this have only one goal -- to make money. This job expects
you to work even if you are feeling ill; even if your throat hurts. You cannot
take even a 10-second break; the dialer throws calls at you continuously and
you have to start pitching (taking them) immediately. If you do not respond
to the person at the other end of the line, s/he might hang up. That shows on
your machine. You have to ask for permission to go to the toilet. Often, your
request is denied by your supervisor.

You repeat the same five sentences 350 times a day. Isn't it pathetic?

When I started out, there was no pressure. Gradually, though, the stress
grew beyond the levels of human tolerance. Working at the call centre was a
great learning experience for me. Now, it was time for a break. When I
worked, I had no time to watch a film, no time to read a book, no time to meet
friends, no time to swim. For the last few months that I worked at the call
centre, I had time only for two meals a day. As a result, I lost my appetite. I
would return home at 2.30 am and go to sleep at 4 am. I would get up at noon
and go back to work at 3.30 pm. Now that I have quit, I can go out with my
friends. I can spend time rediscovering myself. With the approximately Rs 65
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per hour that I made, I can buy a few books and have some fun. Maybe that
will take away the pain that came with this job. But, believe me; the money
could in no way make up for the pain!

I'll never work at a call centre again. Nothing is worth the ordeal I went
through.

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Report on attrition rates of bpo and ites

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